The relation between sovereign credit rating revisions and economic growth
Journal
Journal of Banking and Finance
Journal Volume
64
Pages
90-100
Date Issued
2016-03
Author(s)
Abstract
A country's economic growth exhibits a significant response to sovereign rating changes: a one-notch upgrade (downgrade) causes an increase (decline) of about 0.6% (0.3%) in re-rated countries' five-year average annual growth rates. The results hold after accounting for other determinants of economic growth and potential endogeneity problems, and are robust to the use of quarterly data. Changes in country rating affect economic growth via the interest-rate and capital-flow channels: narrower sovereign bond yield spreads and increased capital inflows are associated with upgrades, which stimulate re-rated countries' economic performance, and the converse holds for downgrades.
Subjects
Capital flows | Economic growth | Sovereign credit rating revision
Publisher
ELSEVIER SCIENCE BV
Type
journal article